#QuickBiteCompliance Day 57
What’s Concentration Risk? Let’s Simplify It!
Think of a farmer who only grows apples. If a storm destroys the apple trees, the farmer has nothing left to sell. That’s called concentration risk—putting too much in one place and risking it all if something goes wrong.
For banks, concentration risk works like this:
1️⃣ On the asset side, it’s about lending too much money to one person or group. If they can’t pay back, the bank is in trouble.
2️⃣ On the liability side, it’s about depending too much on big depositors. If those depositors take their money out all at once, the bank might not have enough cash to keep running.
How do bad guys take advantage of this?
Hidden loans to risky groups: Criminals might disguise themselves as different borrowers to get multiple big loans from one bank. If they don’t repay, the bank takes a hit.
Fraudulent withdrawals: They could use fake companies to make huge deposits, only to suddenly withdraw funds, leaving the bank scrambling.
Manipulating funding sources: By concentrating deposits from criminal networks, they create instability if exposed.
💡 Why It Matters:
Supervisors and banks need to track concentration risks closely and set limits to stay safe. Diversifying assets and funding sources ensures no single borrower or depositor can create chaos!
Let’s stay one step ahead and protect our financial system from bad actors.
#AntiFinancialCrime #RiskManagement #BankingSecurity #Compliance #AML #FinancialStability #FraudPrevention #ConcentrationRisk
Source: https://www.acams.org/en/resources/aml-glossary-of-terms
